I have mixed feelings about net worth. Yes, I do believe it can be a good tool but it is easy to become fixated on a number and forget the other important things of value in your life taht are not as easily trackable.
That said, when used in the right context, it can be a super valuable tool.
The basic concept of net worth is: Assets – Liabilities= Net worth. (Or said another way, all the things you own/money you have – all the things you owe= Net worth)
Knowing your net worth can be a very helpful tool to help you grasp the concept and the excitement of making financial progress. Which as you know, we are all about making financial progress here at Centsei.
Here are 3 ways that knowing your net worth can help you make financial progress:
- It provides a reality check: It is easy to look at how much you are making and make a judgement call. Income is definitely part of the equation, but there are many other aspects that influence your net worth– including investing and monitoring expenses. Tracking your net worth, may give you a reality check on where your money is going and help you to make changes.
- It helps you notice trends: Your net worth will fluctuate and that is totally normal. However, as you track your networth consitently over time, (monthly or annually) you will start to see patterns. The important part is that the overall trend is positive and consistently going up. For example, if you had a networth of $1000 in 2021 , we would want to see that number go up in 2022. This is a visual cue for you, that you are making financial progress! If that number stays the same over a course of a whole year or several months, you may want to institute some changes to change your trajectory.
- It can motivate you: As you start to see that visual progress, it can be a motivator to you to pay off your debt or to cut spending or to increase your income or whatever you may need to do to start moving the number forward.
All in all, tracking your net worth can be one financial tool you use to start making real financial progress today. No need to compare to someone else’s financial situation. As long as you are making progress, that is what matters.
You’ve got this.